Back to the Future Conversations – August 2013

Can you believe that the last month of summer (vacation) is upon us? With vacation coming to a close and the last quarter of the year fast approaching, it’s time to set the table for more meaningful conversations as we prepare for 2014 and beyond.

Back to school has many meanings for me, well beyond the confines of formal education. School, however, is a major focal point in all of our lives  – not just for the time we spend in it, but also for the amount of money we spend on it (or may spend on it). Whether it’s your own personal development or funding your children’s college education – that quest is part of your life’s vision.

As it relates to financial planning, I am always thinking about ways I can I can help people to get more out of their lives. The most reliable starting point for that begins with having meaningful conversations and asking ourselves and our significant others the right questions.  As Lloyd Alexander said:  “We learn more by looking for the answer to a question and not finding it than we do from learning the answer itself.” Take some time this month to start asking yourself the important questions. What are the things you don’t want to regret? Am I truly happy in my career? With school about to be back in session, we have laid a foundation for you to have a meaningful conversation about providing for your children’s college education. We hope you find it helpful.

· The Market Scoreboard for July 2013

· Illuminating Insights: Back to the Future College Conversations

· Radiant Readings: Curated Articles For Your Enlightenment

Market Scoreboard

In July, a subtle shift of leadership has begun to emerge amongst global stock markets. Domestic stocks gained approximately 5% while foreign stocks gained 5.5%. This was only the second month since last November where foreign stocks have held the leadership role.

Within this backdrop, bond yields rose again, causing losses across all bond indexes. Mortgage rates remained on par with June as the 30-year mortgage rate stands slightly over 4.3%. Physical gold finally shook off some of the cobwebs and rallied over 7% in July. Gold coupled with Oil prices rising sharply fueled the commodity index to a sharp gain in excess of 3% for the month.

Earnings season has begun in mass. Each year, in January, April, July and OCtober the majority of publicly traded companies announce their financial performance for the quarter. These reports can often have a dramatic effect on their companies stock prices and the market indices as whole.

Conventional wisdom would assume that with stock markets near all-time high territory that the underlying financial performance (sales & earnings) of the companies that make up the indices to be quite strong. To the contrary. The International Business Times recently reported that, through Friday July 19, only 51% of S&P stocks had topped revenue estimates and the current trajectory of 1% sales decline on average would mark the first negative growth for revenue since third quarter 2009.

This means that companies are selling less now, than they were one year ago. Despite that,  earnings growth continues thru productivity gains and financial engineering (as companies buy back their shares to increase their earnings per share figures). Take Coke for example: sales were down 3% but earnings rose 3%. Eventually, sales growth will be necessary ingredient to propel long term earnings growth.

Despite tepid earnings growth, earnings have been weak relative to expectations, but the S&P 500 still sits within a stone throw of all time highs. That may be because of the soothing refrain offered by Ben Bernanke (monetary policy will remain accommodative… monetary policy will remain accommodative). The important thing to remember is the Fed’s definition of accommodative monetary policy doesn’t necessarily mean maintaining its quantitative easing program. It will be interesting to see what happens in the months ahead but pay close attention to the unloved foreign markets. A new tide may begin to turn.

Here is the market scoreboard for July 2013:

Notes: S&P 500, MSCI World Index ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods. Sources: www.stockcharts.com. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Illuminating Insights: Back to the Future College Conversations

My son recently celebrated his first birthday and my wife and I have been planning for his college education since he was born. While he still has quite a while until that first day comes, these next 17 years are going to come a lot faster than we (or most of you with kids) would think.

As we talk about our son, we envision him with a better opportunity than we had or at a minimum providing him with the same educational opportunities that we were fortunate enough to have. In talking with my clients, for many, paying for college (in some form) is often times one of their biggest goals.

Our family backgrounds and personal experiences play a huge role when it comes to our view on “paying for college”. For some clients, they feel compelled to pay for their children’s college so much so that they would go into personal debt to accommodate this. For others, they feel no responsibility to pay for their children’s future college costs. They may have had to pay for their own schooling and found that experience to be extremely valuable.

Regardless, this subject is ripe with emotions as those that involve both money and dreams often are. Because of this, educational planning is a subject that we spend a lot of analytical and emotional time on. I say this both personally and professionally.

Let’s face it; the college conversation is extremely confronting. First, current college costs are already startling. Take for example my wife’s alma mater George Washington University (where she would love for him to go to school). According to George Washington University (GW), the 2014 academic year costs for an undergraduate are $59,818 per year – not including any personal expenses!  That’s right PER YEAR not all four. Fortunately for my in-laws, my wife received a full scholarship.

Second, the costs of college are rising faster than my son’s vocabulary. In 2012, tuition and fees at U.S. public universities rose 4.8% according to a report by the College Board. This is lower than the 6% rate of the previous decade but is handily outpacing inflation and income growth. At this rate, we could be talking about a $130,000 per year at GW by the time my son heads off for his first year.

Third, we have the “is it worth it” issue. Not only is it extremely difficult for college graduates to find quality jobs, they are also leaving school with a mountain of debt. According to the Federal Reserve Bank of New York, the average student loan balance as of the first quarter 2012 was $24,301. With such staggering amounts of underemployment and high debt, the true value of college comes into question.

There isn’t a clear cut answer to your education planning, but asking the right questions is one step to make better personal financial decisions. My respected colleague, financial planner Carl Richards, offers three fundamental questions you should ask when it comes to paying for your kid’s college:

1. Should they go?

2. When should they go?

3. Should you pay?

It’s also vital that you consider how paying for college will impact your other financial life goals. No matter what, the sooner you begin having these conversations, the sooner you will begin planning for it accordingly and making financial decisions that reflect what you care about most.

Later this month we will be hosting our Real Wealth Webinar on College Planning so be on the lookout for specific details about that event in the near future. As your kids head back to school, feel free to reach out to us if you want to talk in more detail about your children’s college future.

Radiant Readings

Some Investing Stories Sound Good Until You Analyze Them

Carl Richards, in the New York Times, says that making smart money decisions is an incredibly difficult way to behave. He discussed a recent Wall Street Journal article on the new generation of young home buyers.  “Buying real estate has grown more attractive, these young buyers say, compared with the stock market, which appears riskier to a generation that entered the work force during a market correction.” The article shared the story of a 28 year old designer who said that property is the safest place to increase your wealth.

When we hear stories like this one, about young, beautiful people spending a lot of money, it’s easy to go with the assumption that they must be making smart decisions, too. Take a deep breath and closer look next time you see stories like this. Ask Carl says: “You know better. You know what questions you need to ask before buying a house. You know what kind of investments you need to reach the goals that matter to you. And you know that what might work well for someone else isn’t guaranteed to work for you.”

Be the Eye of the Storm

Do you know someone who always remains calm during when everyone else is running for the hill? I’m sure we all know someone like this. But did you know that the way you respond in these types of stressful situations only diminishes your performance and credibility. Whether at home, work, or anywhere else-learn how becoming the center of calm can empower others.

How to Make Happiness a Habit

Happiness-it’s what we all strive to find and keep. It is impossible to be happy all the time, but there are some people who definitely have more  fulfillment in their life than others. When you break it down to the nuts and bolts of the matter, the material possessions and achievements has little to do with it. A great article that gives 4 helpful tips to being happy much of the time.

No Debt for Us, Thanks

Debt. It is so easy to get into. Everywhere you go you can expect to have someone offering you a discount on your purchase just for opening an account. Perhaps it’s that tempting 60, 90, or more days without interest that reel people in. The days of saving your money in a tin can may be outdated, but for one small business owner, this old school way of thinking may have more to offer than we think.

I know you have a lot going on both personally and professionally so I appreciate you taking the time to read this. We’ve given you a lot to think (and talk) about in the months ahead and look forward to our future conversations with you. Please let us know if you need anything at all. Enjoy the rest of the summer and thank you for your continued trust and confidence.

All the Best,
Matt

The opinions and forecasts expressed are those of Matt Rinkey, President of Illumination Wealth Management (IWM) and may not actually come to pass. Mr Rinkey’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Illumination Wealth services. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of IWM’s services. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Rinkey or Illumination Wealth nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Entities including, but not limited to IWM, its officers, directors, employees, customers and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. The analysis contained is based on both technical and fundamental research. Although the information contain is derived from sources which are believed to be reliable, they cannot be guaranteed. Past performance is never a guarantee of future results.